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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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BuyFindarrow_forward

Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

Use the accompanying figure to answer questions 2–4.

images

2. Is the firm in the figure a natural monopoly? Explain your answer.

To determine

Determine whether the firm is a natural monopoly or not based on the figure.

Explanation

Figure-1 shows the natural monopoly market as follows:

In Figure-1, the horizontal axis measures the quantity and the vertical axis measures the price.

The assumptions of the natural monopoly firm are explained as follows:

  • The natural monopoly firm has high fixed costs.
  • In the long-run, the average cost curve falls as an increase in the output.
  • The socially optimal price-output combination occurs where the price is equal to the marginal cost...

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